from Follow the Money

What?

July 25, 2007

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Blog posts represent the views of CFR fellows and staff and not those of CFR, which takes no institutional positions.

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I thought the reason why China couldn't revalue its currency was its desperate need for jobs -- you know, all those migrants from rural China who needed to be absorbed into the modern economy.    Apparently not.

Bloomberg reports that "China will curb exports of cheap labor-intensive products to force manufacturers into making higher-quality goods."

Restricting labor-intensive exports rather than say letting the currency appreciate makes very little sense to me. China isn't having any trouble moving upmarket into more capital-intensive exports on its own -- look at the migration of electronics components production to China and the development of China's auto sector.  

The contradictions in China's development model keep growing. 

Communists -- even , or perhaps especially, the descendants of immortals -- are becoming global capitalists.    And the government of a labor-rich economy where wages are falling as a share of GDP is taking a step that on its face seems likely to reduce demand for labor.

One of the ironies of China's current boom, as this new paper by Eswar Prasad notes, is that it simply hasn't created all that many jobs.   The low-interest rates associated with holding the RMB down -- and the absence of any need for now-profitable SOEs to distribute their earnings as dividends -- has instead encouraged the substitution of capital for labor.   

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